WASHINGTON, July 12: The first signs of the economic damage wrought by a plunging stock market appeared on Friday in a survey showing consumer confidence slumping unexpectedly in July, experts said.

The University of Michigan’s index of consumer confidence, a barometer compiled from a twice-monthly survey, surprised economists by slumping 5.9 points from the previous month to 86.5 in early July.

Market economists had expected a rise.

“It is definitely suggesting that the weakness in stock markets is having a negative impact on both investor confidence and consumer confidence,” said Chicago-based Bank of Montreal economist Sal Guatieri.

“There has to be a break point if stocks continue downwards and the consumer capitulates. Then we are talking about a very anemic recovery in the second half of this year.”

The deterioration of sentiment among consumers, whose spending makes up two-thirds of US economic activity, would raise eyebrows at the Federal Reserve, and could even lead to a rate cut in August, he said.

News of slumping confidence among consumers in July came hard on the heels of data showing that retail sales actually rose 1.1 per cent in June, suggesting shoppers were keeping their purses open.

The gain in retail sales, slightly better than Wall Street economists’ expectations, was helped by an eight-month record 3.4-per cent leap in auto sales, the Commerce Department said.

“Today’s data suggests that consumer spending remains healthy, and this is critical to an economic expansion,” said Kristin Engelberger of Prudential Securities.

But the core rate — excluding autos — rose a more meagre 0.4 per cent, marginally below expectations. And the May figures were revised downwards to show a 1.1 per cent-decline in retail sales.

“The retail sales figures were rather mixed,” Guatieri said.

But the data did suggest consumer spending would rise about 2.5 per cent in the April-June period, providing some momentum for the third quarter, he said.

Share markets, undermined by deep investor scepticism following an avalanche of corporate accounting scandals, were only briefly shaken by the fall in consumer confidence.

Wall Street’s blue-chip Dow Jones index slumped more than 160 points in the immediate aftermath of the news. But by late morning trade, the Dow was up 28.66 points, or 0.33 per cent, at 8,830.19.

Analysts said the slide in consumer confidence would not necessarily lead to a drop in spending.—AFP